2024 (7) TMI 408 - HC - GST

Refund of unutilized ITC of zero rated supplies of the petitioners - transitional credit - HELD THAT - The issue arising in these petitions pertaining to the refund of unutilized ITC of zero rated supplies of the petitioners is already considered and decided by the order of even date in Special Civil Application No. 12712 of 2019 2019 (7) TMI 1383 - GUJARAT HIGH COURT wherein it is held that ' It is not in dispute that the petitioner was entitled to the refund on the zero rated supplies and only ground for allowing the appeal of the department by the CIT appeals is that no balance was available in electronic credit ledger as on the date on which the petitioner was entitled to get refund i.e. end of the month i.e. July, 2017 and August, 2017 because the carried forward of CENVAT credit erstwhile regime was approved by the authority in the month of September, 2017. In such circumstances, the petitioner would never be available to utilize the carried forward of CENVAT credit, which would contrary to the provisions of Section 140 (1) of the CGST Act.' The order dated 07.03.2019 passed by the Commissioner (Appeals), show cause notice dated 02.12.2020 and orders in original for recovery dated 16.02.2021 and 07.03.2019 are hereby quashed and set aside - appeal allowed.

Summary

Issues Involved:
1. Refund of unutilized Input Tax Credit (ITC) for zero-rated supplies.
2. Validity of transitional credit as an opening balance in the electronic credit ledger.
3. Legitimacy of the orders passed by the Commissioner (Appeals) and subsequent recovery notices.

Detailed Analysis:

1. Refund of Unutilized Input Tax Credit (ITC) for Zero-Rated Supplies:
The core issue pertains to whether the petitioner is entitled to a refund of unutilized ITC for zero-rated supplies. The petitioner filed refund claims for July and August 2017 under FORM GST RFD-01A, which were initially sanctioned by the adjudicating authority. However, the Commissioner (Appeals) set aside these refunds, leading to subsequent recovery actions.

2. Validity of Transitional Credit as an Opening Balance in the Electronic Credit Ledger:
The judgment extensively discusses the transitional credit filed in FORM GST TRAN-1. The petitioner argued that this transitional credit should be considered as an opening balance in the electronic credit ledger for granting refunds under Section 54(3) of the CGST Act. The court examined various provisions, including Section 16 of the IGST Act and Section 54 of the CGST Act, which allow for refunds of unutilized ITC on zero-rated supplies. The court noted that the transitional credit, once verified and approved, should be treated as an opening balance effective from 01.07.2017.

3. Legitimacy of the Orders Passed by the Commissioner (Appeals) and Subsequent Recovery Notices:
The Commissioner (Appeals) had denied the refund on the grounds that the transitional credit was not reflected in the electronic credit ledger at the time of filing the refund claims. The court found this approach to be overly literal and not in line with the intent of the transitional provisions under Section 140 of the CGST Act. The court ruled that the petitioner is entitled to the benefit of the carried-forward CENVAT credit as if it was available on 01.07.2017, thus quashing the orders of the Commissioner (Appeals) and the subsequent recovery notices.

Conclusion:
In summary, the court allowed the petitions, quashing the impugned orders and recovery notices. The judgment emphasized that the transitional credit should be considered as an opening balance for the purposes of refund claims, aligning with the provisions of Section 140(1) and Section 54(3) of the CGST Act. The court's decision ensures that the petitioner is entitled to the refund of unutilized ITC for zero-rated supplies, thereby setting aside the orders passed by the Commissioner (Appeals) and the subsequent recovery actions.